AND TEST THE MARKET FIRST
Entrepreneurs
are the engine of the economy. Successful ones start businesses, hire people
and generate useful products and services. Typically, they are smart,
resourceful, experimental and hard-working individuals. Despite possessing
these positive business attributes, over 70% of start-up businesses fail within
two years. Why?
In many cases, new businesses are
launched into declining markets, e.g., smoke shop, book store, stamp collecting,
stationery, film rental, film processing, hats. Or, they enter saturated
markets with established, close-by competitors like hamburger joints, bars,
restaurants, high-ticket clothing. Or they replicate already proven apps for
mobile devices. Or they write an app or computer program they’re in love with
but nobody else is. Will your killer app be murdered?
Often, the new startup’s product line is
too narrow-based with items such as ties or slacks or shirts and fails to carry
related items like ties and shirts or
shirts and slacks. However, even
those weird combinations aren’t usually enough to make a bricks-and-mortar or
online store a destination. Specialization is good if it draws a sufficient
number of potential customers, but too often the product choices reflect the
fulfillment of an aspiring entrepreneur’s personal dream rather than market
realities. You may recall end-of-film dialogue from “The Maltese Falcon.”
“What is that thing, Sam?”
“It’s the stuff that dreams are made
of.”
ARE
YOU TRANSFORMATIVE? A lot of new businesses will start and
remain on the ground. Some will operate both on the ground and on the Internet,
and a rapidly growing number will have the altitude and amplitude to be solely
Internet-based. Successful entrepreneurs will have the wit and the wisdom to
guide their enterprises through a future characterized not so much by change
but by the rapidity of change.
“The future is
bright before us before us like a flame.” –Langston Hughes
PRACTICE
BUSINESS HUMILITY Nice sentiment, but don’t get burned by bad
choices. People with entrepreneurial minds are usually bright, sometimes too
smart for their own good and unwilling to accept that they don’t know
everything. Highly intelligent people invariably share a common outlook: they
believe that they know what to do and they are the ones to do it. Consequently,
they tend not to seek or accept advice, and despite the brain power too often
operate like unconscious incompetents: they don’t know that they don’t know.
The most productive attitude for the rookie entrepreneur is to understand that
they don’t know and then do their due diligence into—what are all possible
reasons that this business may fail?
STICK
TO MARKETS YOU KNOW Firsthand evidence is also useful. A friend
was a salesperson for a major paper manufacturer. His best-selling product was
paper plates. Problem (or opportunity) was that he couldn’t supply his
customers with enough paper plates of all sizes, especially dinner-size. Pleas
to the home office for more inventory went unanswered. The friend asked his
customers whether they would buy plates directly from him if he could get them.
Yes, they said.
He quickly rounded up the money from
an array of small investors, mostly friends and relatives, mortgaged the family
home, went into deep debt, rented a building, bought the equipment, taught
himself how to use it and began turning out paper plates. He couldn’t make
enough, particularly in the summer months and was, within a few years, a
multimillionaire. My friend said, “I’m not making plates. I’m printing money.”
It was a good example of Say’s law that states: supply creates its own demand.
The law was true in this case, but false in many others.
Then my friend made the fatal
entrepreneurial error of not sticking to the original plan. He sold the
business and was soon investing in greeting card stores, car-lubrication shops
and more. He promptly lost mos t of his wealth. The need for paper plates was
clear, but the need for another card or lube shop wasn’t.
Reminds me of the St. Joseph Aspirin
ad that conveys in so many words that they only make one product, and they do
it very well.
Business Insights, Quality
Intent and Discussion Topics: Entrepreneur
alert: Note that early in this article an experimental state of mind was
mentioned as a valuable asset. However, close-mindedness is a personality
quality that often dooms budding entrepreneurs to failure. Get help early on in
any business venture. Companies that train founders exist. Find one and learn
with people like you who are willing to share ideas under the leadership of
teachers who know how to play successfully in the new-company game.
Before starting a business examine or do the
following: (1) Is there a big-enough market for your product and services to be
sufficiently profitable? (2) Will your business survive in the long term? (3)
Who are your competitors, how are they doing, and can you achieve a favorable
competitive position? (4) Are you launching into a growth market? (5) Write a
marketing plan that describes how you intend to sell your product. Is it fit
for a store, or direct mail or direct sales or online marketing, or any of
these in combination?
ASK
THE QUESTION Talk to anybody—especially tough-minded
business survivors—about your product or service idea and ask them to be
critical. For sure, quiz people in the same type of business you are
considering. Write a financial plan that includes sales projections. Include expenses, and detail how you intend to keep
them low. Make timeline estimates of worst, middle and best-case revenues and
expenses. Invariably, the costs will be higher and the revenues lower than your
best calculations.
Determine if your products or services
are of sufficiently high quality for the prices you are charging. Despite its
lofty quality, do enough people want or need your product or service? You don’t
want to end up with a lot of canceled contracts or returned goods. And don’t
buy or rent anything. Work on your project at home until all questions are
answered and you have enough money to survive until your new business achieves
liftoff.
On being asked to describe the history of entrepreneurship,
science fiction writer Ray Bradbury
said, “The garage.”
OPERATIONAL
DEFINITION Write a statistics-based operational
definition of your product or service. (Reminder: service is a product) Use a
quality tool, like a control chart, (you can find an example online). Use it to
measure acceptable upper and lower quality levels of your product. Can you
control variation within tolerable limits for your product or service?
The operational definition will help you
to determine whether your product is fit for use, a helpful measure of quality.
It is also constitutes a precise product or service description that you and
others associated with your business can agree on while moving forward with
exactitude.
TEST
THE MARKET Back in the pre-Internet era, a business
acquaintance marketed what appeared to be a serviceable electronic calculator
through direct mail. His sales forecasts were accurate and he met them. He
looked good in his company and rode high for a few weeks. Soon the returned goods
trickled in, and then they crashed in like a Tsunami. He didn’t wait for the
firing; he just packed his gear and left. Nothing needed to be said.
As it turned out, the calculator was
useful, customers liked it, but didn’t like it enough at the price.
Unfortunately, my friend didn’t sufficiently test the market by making a small
mailing to get a few orders that he could follow through on and gather
customer’s reaction to price and function. Instead, the initial mailing was
huge setting the stage for a disaster
Why didn’t he call me, or call someone
who know the risks of big mailings? His answer was, “Must be because I’m
stupid.” He’s not stupid, far from it. He’s very bright, but tends toward the
all-knowing. Oops! There goes the friendship potential.
“The
most important word in the vocabulary of advertising is TEST.” –David Ogilvy
(This axiom applies to any marketing venture, legacy or online.)
NOTE:
If it’s not live on the page, please copy and paste the URL below to see fiction
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